Perch corporation has made paint and paint brushes for the past ten years. perch corporation is owned equally by arnold, an individual, and acorn corporation. perch corporation has $100,000 of accumulated and current e& p. both arnold and acorn corporation have a basis in their stock of $10,000. perch corporation discontinues the paint brush operation and distributes assets worth $10,000 each to arnold and acorn corporation in redemption of 20% of their stock. due to the distribution, arnold and acorn corporation must report a. arnold acorn corporation $8,000 capital gain $8,000 capital gain b. arnold acorn corporation $10,000 dividend $10,000 dividend c. arnold acorn corporation $10,000 dividend $8,000 capital gain d. arnold acorn corporation $8,000 capital gain $10,000 dividend

D. Arnold = $8,000 capital gain, Acorn Corporation = $10,000 dividend

Explanation:

Since Acron Corporation is a firm and not an individual, thus it is not entitled to any partial liquidating distribution.

He shall receive everything as dividend and nothing in exchange of his 20% partial share.

Thus, amount received by it shall be $10,000 dividend upto the value of accumulated earnings.

Further in case of Arnold being the individual his share = $10,000 - $2,000 is capital gain.

Acquisition base = $10,000 20% = $2,000

Amount received = $10,000

Thus, it shall be a capital gain = $10,000 - $2,000 = $8,000

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.